How Much Is the Market Really Worth?

This transcript has been automatically generated and may not be 100% accurate.

... Dow Jones industrial average of fourteen points ... really move on to that of course you all know they've been doing over the last couple weeks ... last couple months last couple years they had been skyrocketing right everything's fine now ... and everything looks like roses it's just that the stock market ... however ... is the stock market overvalued nobody wants to hear that what they say they don't even know where one man who's gonna tell you all the misty Blumenthal ... CEO and founder of CMG Capital Management ... who says the ... SNP is overvalued ... well ... I listen we Adam search around for so don't actually say remote villages take the money on it in KL we get excited ... and the ... markets can t stop in this market is certainly fueled by Lionel Acquity creation has been happening around the globe with the central bank's rate so ... it's good to take a step back and say where are we relative to a fair value ... range so what I like to do is only to look at a median PE ... not about ... what ... analysts are saying might happen in the future with their expectations but really what has happened so actual reported earnings and as an anchor to something ... so the over the last forty nine years ... the average has been roughly sixteen point six the NEP for the media picked up a hike a couple of fine fine the middle ... and today we're close to ninety ... so ... fair value would argue based on the fifty year forty nine year norm ... in Essen P somewhere around fourteen ten ... while we're several hundred point three I there were very form of that so ... awful ... ok look you see right there the SNP five hundred and sixteen twenty nine year saying it should be around fourteen and the ... out while Halliwell and well I like to think about it a little bit more in terms of range young investors needed equity exposure over ten to twenty year period time you gotta do fine right ... but we get ... the motion the chase The and ... and we start in so you go over the last ... two years nineteen of the twenty four months ... interesting Lee ... there had been equity outflows out of mutual funds ... so what is an investor did today now all the sudden it's tedious exciting delight chase him today ... I'm saying no ... and if you have exposure I think you find some inexpensive ways to protect that exposure hedge it ... for ... so ... earnings for sale is completed earnings season ... now the numbers were not really that great Marilyn Saylor better than expected that's fine but when you look at the run-up sleuthing ... the they really were not good when Eesti going on with earnings ... that obviously the present with the stocks with the union is still in partly this is the other side of the coin if if a fair value summer down here and were trading above it ... what happens with earnings is that they run through like business is from from predictable cycle so earnings tend to peak ... in the rollover ... it appears that earnings peak ... of somewhere around third-quarter in two thousand twelve last year ... so if you look at ... other cycles we are actually below the trajectory of declined ... slightly so to count on ... a relative expensive market ... with earnings that are declining because it's the earnings that drives the price earnings ratio valuation of roughly ninety today ... that's ahead when this hits trouble ... yet ... he refused insisting that that's not a huge secret right I mean when you look at the numbers anybody can now ... but like you said we all know the Fed ECB Bank of Japan and they are flooding the market was a liquidity ... so you could be a nervous investors alike I think it's overvalued ... but you have that equity exposure ... I'll what you do I mean how do you ... honey you square that circle a circle a square like ... how you how you deal with that ... well so I think that in part a large problem is most portfolios are sixty stocks forty bonds ... so when interest rates really low with the deal's love the Ford projected return ... is low but ... how do you as investors stayed seated in your investment plan ... when the emotion that goes on around excited to get a market when it's overvalued so ... I propose a better allocation mix along the lines of modern portfolio theory but a broader call in handspun portfolio theory ... the C thirty three equities ... thirty three fixed income but think a little bit differently there may be shorter term and be patient ... and then in the ... other bucket ... I'd like to call a tactical or alternatively were rather it's the new space it's confusing to a lot of people ... but that schools are out there to gain access to its cities are tactical light trading strategies ... awards party positions ... may be a position with gold or short yen or whatever and you may be ... but you don't over bake your entire portfolio on one thing ... the idea is you combine a diverse set of ... noncore leading return strains ... to take this out of it ... and try to get